International Growth ADR Strategy - Commentary

2nd Quarter 2021

Greg Dunn
Greg Dunn
Portfolio Manager and Managing Director
Sean Koung Sun, CFA
Sean Koung Sun, CFA
Portfolio Manager and Managing Director
Portfolio managers are supported by the entire Thornburg investment team.
July 1, 2021
Market Review

The long-awaited hope of economic reopening and global growth materialized in the second quarter as an increasingly vaccinated population encouraged a return to economic activity. The rapid increase in activity created fast economic growth and falling unemployment off the pandemic highs, but this was tempered by relatively higher inflation pressures, transitory or not, supply constraints, labor shortages and a backup in rates. This initially continued to produce a positive environment for lower valuation and cyclically exposed stocks, but this turned towards the end of the quarter as growth stocks began to rally after experiencing multiple compression over the past three quarters.

The relative strength of growth stocks late in the quarter seemingly reflects the nature of an accelerated economic cycle. While international growth indices pushed closer to all-time highs, the positive performance was not ubiquitous. Chinese companies, and specifically Chinese technology, continued to struggle as regulatory uncertainty dampened investor sentiment. Europe showed some relative strength during the quarter as Japanese growth stocks struggled.

Second-Quarter Performance Highlights
  • The Thornburg International Growth ADR Strategy—Wrap returned positive 4.47% (net of fees), underperforming its benchmark, the MSCI All Country World ex-US Growth Index, which returned positive 6.60%.
  • Top contributors to performance by sector were in health care and consumer staples, where stock selection in the sectors drove relative outperformance. The primary detractors by sector were in the two largest sectors, information technology and consumer discretionary.
  • Top contributors to performance by geography were the Netherlands and Canada where stock selection was the primary driver in both countries. The countries that were the largest detractors from relative performance were France and China as stock selection effects were negative.

Current Positioning and Outlook

For the rest of the year, economic growth should continue as the world re-opens and economic activity rebounds off a low base. Although this broadening of economic growth has favored the relative laggards of last year, such as rate sensitive, commodity focused and cyclical stocks at the expense of growth stocks and “pandemic beneficiaries,” we believe that much of the cyclical multiple reflation is priced in the market. As we look further out, aspects of the market environment remain uncertain and volatile and there is likely to be a wide range of outcomes amongst economies and company fundamentals. We believe this creates a favorable environment for our process that emphasizes bottom-up analysis and stock selection. We see the fundamentals of our companies as strong and in many cases strengthening. In spite of macroeconomic factors, such as rising inflation expectations, that can impact valuations, we believe that as economies normalize and we enter mid to later cycle conditions, this creates a favorable backdrop for high quality growth stocks.

Thank for your continued support and for investing alongside us.

Important Information

Unless otherwise noted, the source of all data, charts, tables and graphs is Thornburg Investment Management, Inc., as of 6/30/20.

Performance data for the International Growth ADR Strategy is from the International Growth ADR Wrap Composite, inception date of May 1, 2010. The International Growth ADR Wrap Composite includes discretionary wrap accounts invested in the International ADR Growth Strategy. Returns are calculated using a time-weighted and asset-weighted calculation including reinvestment of dividends and income. Periods less than one year are not annualized. Individual account performance will vary. The performance data quoted represents past performance; it does not guarantee future results. "Pure" Gross returns do not reflect the deduction of any expenses, including trading costs and are supplemental to net returns. Beginning January 1, 2009, net returns reflect the deduction of the maximum total wrap fee which is currently 3% per annum. Net returns are derived from subtracting 1/12th of 3% from each account's monthly gross return. The total wrap fee includes all charges for the trading costs, portfolio management, custody and other administrative fees. Prior to January 1, 2009 net returns reflect actual wrap fees for each account in the composite. Beginning January 1, 2014 returns reflect the deduction of transaction costs for some accounts in the composite. The standard fee schedule currently in effect is: 1% to 3% on all assets. Fees may be negotiated in lieu of the standard fee schedule. Actual fees may vary depending on, among other things, the applicable fee schedule and portfolio size. The firm's fees are available upon request and also may be found in Part II of its Form ADV.

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

Holdings may change daily and may vary among accounts.

The information provided herein should not be considered a recommendation to purchase or sell any particular security. There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed may not represent an account's entire portfolio and in the aggregate may represent only a small percentage of an account's portfolio holdings. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

Portfolio holdings and characteristics shown herein are from a representative account managed within the investment composite. The representative account is selected based on account characteristics that Thornburg believes accurately represent the investment strategy as a whole. Should these characteristics change materially, Thornburg may select a different representative account. Holdings may change daily and may vary among accounts, which may contribute to different investment results. The representative account information is supplemental to the strategy's composite and GIPS compliant presentation.

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